Rubino welcomes you to this inaugural tax update newsletter. This newsletter highlights some of the most recent federal and state tax updates.
Federal Tax Updates
Supreme Court to rule on FBAR penalty case
On November 2, 2022, the Supreme Court heard oral arguments in a case involving a long standing FBAR ruling to decide if the penalty for failure to report foreign financial accounts should be levied on a per-account basis or per FBAR form. The dispute arises due to conflicting decisions in the US Courts. The US Court of Appeals of the Fifth Circuit [(in case of United States v. Bittner 19 F.4th 734 (5th Cir. 2021)] held that a separate violation occurred for each foreign account not timely reported on an FBAR. The Ninth Circuit decided (in the case of United States v. Boyd, 991 F. 3d 1077) that the penalty should apply on a per-filing basis. Every US Citizen and resident is required to file the FBAR form if they have a financial interest or signature authority over any financial account and the aggregate value of all accounts exceeds $10,000 at any time during the calendar year. Non-compliance leads to a levy of penalties by the IRS. This Supreme Court ruling is expected to bring greater clarity for taxpayers on how the penalties will be assessed and levied in non-willful cases.
IRS released draft 2022 Partnership Instructions for Schedules K-2 and K-3 (Form 1065) and 2022 Partner’s Instructions for Schedule K-3
On October 25, 2022, the IRS posted draft 2022 Partnership Instructions for Schedules K-2 and K-3 form 1065 and 2022 Partner’s instructions for Sch K-3. The instructions provide further guidance and examples concerning the information a domestic partnership with solely domestic activity may be required to report to a partner. These instructions add a new exception for filing and furnishing Schedules K-2 and K-3 and clarify the reporting with respect to Forms 5471, 8621, country codes, capital gains etc. The instructions include new guidance on using the information on Schedule K-3 to report foreign tax redeterminations on Forms 1116 and 1118.
State Tax Updates
Taxability of Student Loan Forgiveness
Earlier in the year, student loan debt forgiveness of up to $20,000 was announced for Pell Grant recipients with loans held by the Department of Education, and up to $10,000 for non-Pell Grant recipients. The discharge of student loan debt will be exempt from federal gross taxable income from January 1, 2021, through December 31, 2025.
Note that currently, the discharge of loans under the student loan forgiveness plan has been halted in view of the Federal Court of Appeals decision (Nebraska v. Biden, 22-3179, 8th US Circuit Court of Appeals). An update will be provided in the next newsletter.
Impact on the District of Columbia income tax
On October 13, 2022, the Office of Tax and Revenue issued OTR Notice 2022-07 on the taxability of Student Loan Forgiveness. The notice states that, since the District conforms to the Internal Revenue Code § 108(f)(5), to the extent a student loan is forgiven and the forgiveness is excluded from federal taxable income, the amount will also be excluded from District taxable income.
Impact on the Maryland income tax
On October 26, 2022, the Comptroller of Maryland issued a tax alert which describes the impact of student loan debt cancellation on Maryland individual income tax. The alert also provides information on the Maryland student loan debt relief tax credit.
Maryland SDAT Amends Property Tax Regulation on Depreciation of Personal Property
The Maryland Department of Assessments and Taxation adopted the proposed amendment to the regulation on the depreciation of personal property. The amendment includes defining the term ‘salvage value’ to mean the value of the personal property after all depreciation under this regulation has been applied. It further states that personal property may be depreciated to its salvage value, instead to 25% of the original cost. The amended regulation is effective October 31, 2022, and will have implications for personal property tax returns.